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Key Parties in Factoring Transactions

This document discusses the concept of factoring. Factoring is when a business sells its accounts receivable to a third party called a factor at a discount in order to meet immediate cash needs. A factor is a financial institution that purchases receivables and assumes the risk of non-payment by customers. There are three parties involved - the supplier/seller, the buyer/debtor, and the financial intermediary factor. Factoring provides sellers liquidity and credit benefits while allowing customers better credit terms. However, it is a costly process and reliance on the factor increases.

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Dhairyaa Bhardwaj
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7 views13 pages

Key Parties in Factoring Transactions

This document discusses the concept of factoring. Factoring is when a business sells its accounts receivable to a third party called a factor at a discount in order to meet immediate cash needs. A factor is a financial institution that purchases receivables and assumes the risk of non-payment by customers. There are three parties involved - the supplier/seller, the buyer/debtor, and the financial intermediary factor. Factoring provides sellers liquidity and credit benefits while allowing customers better credit terms. However, it is a costly process and reliance on the factor increases.

Uploaded by

Dhairyaa Bhardwaj
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

FACTORING

PRESENTED BY:-
DHAIRYA
ROLL NO – 03
MBA (FINAL) SEC-A
CONCEPT OF FACTORING

• FACTORING IS A FINANCIAL TRANSACTION AND A TYPE OF DEBTOR FINANCE IN


WHICH A BUSINESS SELLS ITS ACCOUNTS RECEIVABLE (I.E., INVOICES) TO A THIRD
PARTY (CALLED A FACTOR) AT A DISCOUNT. A BUSINESS WILL SOMETIMES FACTOR
ITS RECEIVABLE ASSETS TO MEET ITS PRESENT AND IMMEDIATE CASH NEEDS.
DEFINITION

• FACTORING IS THE OUTRIGHT PURCHASE OF CREDIT APPROVED


ACCOUNTS RECEIVABLES WITH THE FACTOR ASSUMING BAD DEBT
LOSSES.
-C.S. KALYANASUNDARAM
WHO IS A FACTOR?

• A FACTOR IS A FINANCIAL INSTITUTION THAT SPECIALIZES IN


PURCHASING RECEIVABLES FROM BUSINESS FIRMS. FACTOR ASSUMES
THE RISK OF COLLECTION OF RECEIVABLES AND ON THE EVENT OF NON
PAYMENT BY DEBTORS/CUSTOMERS BEARS THE RISK OF BAD DEBT AND
LOSSES.
PARTIES INVOLVED IN FACTORING

SUPPLIER OR SELLER (CLIENT)

BUYER OR DEBTOR ( CUSTOMER)

FINANCIAL INTERMEDIARY
(FACTOR)
FEATURES

• 1. IT IS VERY COSTLY.
• 2. USUALLY THE PERIOD FOR FACTORING IS 90 TO 150 DAYS. SOME
FACTORING COMPANIES ALLOW EVEN MORE THAN 150 DAYS.
• 3. IN FACTORING THERE ARE THREE PARTIES: THE SELLER, THE DEBTOR AND
THE FACTOR.
• 4. IT HELPS TO GENERATE AN IMMEDIATE INFLOW OF CASH.
• 5. HERE THE FULL LIABILITY OF DEBTOR HAS BEEN ASSUMED BY THE
FACTOR.
• 6. FACTOR HAS THE RIGHT TO TAKE ANY LEGAL ACTION REQUIRED TO
RECOVER THE DEBTS.
TYPES OF FACTORING

 RECOURSE FACTORING
 NON-RECOURSE FACTORING
 DOMESTIC FACTORING
 INTERNATIONAL FACTORING
 NOTIFIED AND UNDISCLOSED FACTORING
MATURING FACTORING
WORKING OF FACTORING
FACTORING COMPANIES IN INDIA

 SBI FACTORS AND COMMERCIAL SERVICES PVT. LTD.


 THE HONG KONG AND SHANGHAI BANKING CORPORATION LTD.
 FOREMOST FACTORS LIMITED
 GLOBAL TRADE FINANCE LIMITED
 EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD.
 SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)
ADVANTAGES OF FACTORING

FOR CLIENTS

• LIQUIDITY BENEFIT
• BETTER CREDIT TERMS
• DOES NOT NEED TO DEVOTE MUCH TIME
• PROPER MANAGEMENT
• OPPORTUNITY OF EXPANDING BUSINESS
FOR CUSTOMERS

• BETTER CREDIT PURCHASE


• SUBSTANTIAL MONEY IS SAVED
• NOT REQUIRED TO FURNISH DOCUMENTATION
• RETAINS THE RIGHT AGAINST SELLER

FOR BANKS
DISADVANTAGES

• COSTLY
• DELETERIOUS EFFECT ON THE CREDITWORTHINESS
• CREDIT LIMIT ON TRADE
• DIFFICULT TO RESCIND THE AGREEMENT
• RELIANCE ON FACTOR

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